part 2

22 (g) If the buy-back of shares comply with the directives relating to capital fund issued by the Rastra Bank to the bank or financial institution, (h) If it is not against the directives issued by the Rastra Bank from time to time with regard to buy back of shares. (3) Any bank or financial institution shall have to make an application before the Rastra Bank for getting approval to buy-back own share pursuant to Sub-Section (2) with the following details:- (a) The reason, necessity, time duration and modus-operandi for the buy-back of shares, (b) A statement of the evaluation of possible impacts on the financial situation of the bank or financial institution as a result of the buy- back of shares, (c) The type of share, par value of share and number of shares purpose to buy-back, (d) The maximum or minimum amount required to buy-back shares as referred to in Part (c), and source of such amount, (e) Such other matters as specified by the Rastra Bank with regard to the buy-back of shares, (f) Other necessary matters to be mentioned as per the prevailing laws. (4) The Rastra Bank may, in case it deems appropriate to grant approval to such bank or financial institution to buy back its own shares based on the application acquired pursuant to Sub-Section (3) and details enclosed with it, grant such approval. (5) Upon receipt of the approval pursuant to Sub-Section (4), the concerned bank or financial institution may buy back its shares in any of the following manners, within six months from the date of receipt of such approval or within twelve months of the adoption of a special resolution at the General Meeting, whichever occurs later: -.

23 (a) Purchasing through the securities market, (b) Purchasing from the existing shareholders on a proportional basis. (6) If a bank or financial institution buys back its own shares pursuant to Sub-Section (5), it shall file with the Rastra Bank a return containing the number of shares bought back, amount paid for the same and other necessary details within thirty days of the date of such buy-back. (7) There shall be established a separate capital redemption reserve fund, to which a sum equal to the face value of the shares bought back pursuant to Sub- Section (5) shall be transferred; and the amount of such fund shall be maintained as if it is the paid-up capital. (8) If the bank or financial institution buys back its shares pursuant to Sub- Section (5), it shall cancel the shares so bought back within one hundred twenty days of the date of such buy-back. (9) Other provision regarding to buy-back own shares by the bank or financial institution shall be as prescribed by the Rastra Bank. Chapter 4 Provisions on Board of Directors and Chief Executive 14. Formation of Board of Directors: (1) A bank or financial institution shall have a Board of Directors comprising of at least five Directors and not exceeding seven Directors. (2) Subject to this Act and the Articles of Association, the General Meeting of the bank or financial institution shall appoint Directors. Provided that,-.

24 (a) Until the First Annual General Meeting of the bank or financial institution is held, promoters shall appoint the Directors. (b) In case the position of any Director falls vacant before the holding of the Annual General Meeting, the Board of Directors may appoint Director until next General Meeting is held. (c) In case any corporate body has subscribed shares, it may appoint Director to the proportion of the number of shares it has subscribed and while nominating in such a manner, the same person shall not be nominated to more than one bank or financial institution. (d) Notwithstanding anything contained in Part (c), there shall be no obstruction to appoint a person, who is Director in any bank or financial institution as Director of an Infrastructure Development Bank. (3) The Board of Directors shall appoint at least one Professional Director from among the persons possessing qualifications and experience pursuant to Section 17 and information thereof shall be furnished to the First General Meeting to be held after such appointment. Provided that the promoter, Director or shareholder possessing more than 0.1 percent share of the bank and financial institution and his/her member of family shall not be allowed to become a Professional Director. (4) Notwithstanding anything contained in Sub-Section (1) and (3), no more than one member of a family may become the Director of any bank or financial institution at the same time. (5) A Director chosen by the Directors from among themselves by majority decision shall be the Chairperson of the Board of Directors. (6) The company, corporate body, foreign bank or financial institution which has subscribed shares of a bank or financial institution may, while appointing a.

25 director proportionate to the shares as it has subscribed, appoint an Alternate Director to work in absence of the Director. 15. Term of Office of the Director: (1) The term of office of a Director shall be of four years in maximum as provided for in the Articles of Association and he/she may be reappointed or re-nominated. Provided that the Independent Director may be appointed for only single tenure of office. (2) Notwithstanding anything contained in Sub-Section (1), the Executive Chairperson or Managing Director appointed after commencement of this Act shall remain in the office only for two consecutive terms. 16. Qualifications of Director: (1) The person to be appointed to the office of Director shall have to possess following qualifications:- (a) Having had work experience of five years as a Director or office bearer level of a foreign or local bank or financial institution or of body corporate of related sector or in officer level of Government of Nepal, or (b) Having attained bachelor degree and had work experience of at least three years as a Director or office bearer level of a foreign or local bank or financial institution or of body corporate of related sector or at least in officer level of Government of Nepal, or (c) Having attained master degree in the related subject as prescribed. (2) Notwithstanding anything contained in Sub-Section (1), the academic qualifications and experiences of Director of a financial institution of class "D" shall be as prescribed by the Rastra Bank from time to time. Provided that qualification of independent director shall be as mentioned in Section 17..

26 17. Qualifications of Independent Director: While appointing Independent Director of the bank or financial institution, appointment shall be made from amongst the persons having met the following qualification and experience:- (a) In case of class “A” bank or national level class “B” development bank, having obtained at least master’s degree in the subject as prescribed by the Rastra Bank and experiences as prescribed by the Rastra Bank, (b) In case of class “B” development bank and financial institution of class "C", except the class “B” development bank of national level, having obtained at least bachelor’s degree in the subject prescribed by the Rastra Bank and work experiences as prescribed by the Rastra Bank, (c) In case of micro finance institution of class "D", the person possessing the qualifications and experiences prescribed by the Rastra Bank. 18. Disqualification of Directors: (1) Following persons shall not be eligible to become a Director of the bank or financial institution:- (a) Having not attained the age of 25 years, (b) Having unsound mind or insane, (c) Having declared bankrupt in Nepal or in abroad for being unable to pay debt, (d) Having blacklisted or declared defaulter in connection with any transaction with any bank or financial institution in Nepal or in abroad, and a period of at least three years has not been completed after removal of his\her name from blacklist or list of defaulter, (e) The incumbent Director or an employee of any corporate body carrying out transactions of bank or financial institution or any institution collecting any type of deposits or carrying out transactions relating to insurance, (f) Borrower or incumbent auditor or advisor of concerned bank or financial institution or the person, firm or company who/which is the partner in.

27 any kind of contract with the concerned bank or financial institution or having personal interests, (g) Who has acquired membership of the Stock Exchange to act as a securities broker of merchant banker, (h) Incumbent Director of the bank or financial institution, (i) The person, who has not subscribed to the minimum number of shares required to be subscribed to be eligible for appointment as a Director pursuant to the Articles of Association of the bank or financial institution, (j) Incumbent employee of Government of Nepal, or an organization having ownership of Government of Nepal, or Rastra Bank or of a bank or financial institution, Provided that this provision shall not be deemed to have made obstruction to nominate Director in micro-finance or infrastructure development bank, of which share has been purchased by Government of Nepal or the institution having under the ownership of Government of Nepal or Rastra Bank or bank or financial institution. (k) Who, having a liability to pay tax pursuant to the laws in force, has failed to pay the same (l) Having not completed a period of ten years after replenishment of punishment upon being convicted of an offence of theft, cheating, forgery, fraud, corruption, any offence involving moral turpitude or a banking offence from a court of Nepal or of a foreign country, (m) Having been taken action by a regulatory agency as per law for committing an act against law and not having completed a period of five years after being taken such action, (n) In case of an independent director, promoter or shareholder holding ownership of more than 0.1 % share of concerned bank or financial institution,.

28 (o) Having remained to clear imprisonment and dues of fine as imposed by the court or having defaulted to pay government due. (2) Notwithstanding anything contained in Part (e) of Sub-Section (1), an official or employee of a bank or financial institution may work as a Director of the subsidiary company of the same bank or financial institution. 19. Circumstances for ineligibility to remain in office of Director :(1) No person shall be remained in the office of Director of the bank or financial institution in any of the following circumstances:- (a) If having no qualifications as referred to in Section 16 or 17 or is ineligible pursuant to Section 18, (b) In case the motion to remove from the office of a Director is passed by majority of the general meeting at the recommendation of the group from which he/she is appointed to the office of Director that is passed by the shareholders having representation of at least 51 percent of the shares of the same group, Explanation: For the purpose of this Section, “group” means a group of promoters and shareholders from general public. (c) In case the resignation tendered by a Director from his/her position is approved, (d) In case of commission of any act that is not supposed to be committed under this Act or directives of Rastra Bank, (e) In case the Rastra Bank directs to remove from the office stating that since a Director has committed acts against rights and interests of the bank or financial institution or of the depositors and since he/she is not competent to carry out works as in the office of a Director of the bank or financial institution. (2) In case a bank or financial institution deems that any of its directors is ineligible to remain in the office of the Director according to this Act or the Rastra.

29 Bank Act or is no more in the office, written information thereof shall be given to the Rastra Bank within fifteen days. (3) The Rastra Bank may, if it has received in written form with regard to a Director that he/she is ineligible to remain in the office as stated in sub-Section (2), issue appropriate direction after carrying out necessary enquiry. 20. As to an incumbent Constitutional Position Holder: No person who holds a constitutional position shall, so long as he/she is holding such position, be eligible in the Board of Directors or as the Chief Executive of any bank or financial institution. 21. Meetings of Board of Directors: (1) Meetings of the Board of Directors shall have to be held at least 12 times in a year. Provided that gap between two meetings shall not be more than sixty days. (2) The chairperson shall convene a meeting of the Board of Directors at any time when at least one-third of the Directors request in writing to convene the meeting by mentioning the agenda to be discussed in the meeting. (3) Meetings of the Board of Directors shall be presided over by the Chairperson. In absence of the Chairperson, the meeting shall be presided over by a Director selected by majority of the Directors from amongst themselves. (4) No meeting of the Board of Directors shall be held unless it is attended by at least fifty one percent of the total number of Directors. (5) The decision of a majority in the meeting of the Board of Directors shall be binding and the chairperson may exercise the casting vote only in the event of a tie..

30 (6) Minutes regarding the names of Directors attend in the meeting of Board of Directors, the agenda discussed and the decisions taken thereon shall be recorded in a separate book, and such minutes shall be signed by all Directors attended in the meeting. Provided that, if any Director puts forward any dissenting opinion in the decision of the Board of Directors, he/she may mention such dissenting opinion in the minutes by putting own signature. 22. Functions, Duties and Powers of Board of Directors: (1) All functions, duties and powers to be exercised by the bank or financial institution, except those functions to be performed by the General Meeting, shall be vested in the Board of Directors subject to this Act, prevailing laws and the Memorandum of Association and Articles of Association. (2) It shall be the duty of the Board of Directors to operate bank in the interests of depositors, costumers and general shareholders having taken overall risks management of the bank or financial institution and to make assurance not to intervene into daily conduct of business such as deposit collection, lending, investing, managing personnel, making expenses from budget having maintained appropriate corporate governance in the bank or financial institution. (3) Other functions, duties and powers of the Board of Directors shall be as follows:- (a) To frame necessary Byelaws, directives, procedures and to enforce them subject to this Act, the prevailing laws and directives of the Rastra Bank in order to carry on the functions of bank or financial institution in well order, (b) To prepare internal control system and risks management norms for avoiding the emergence of risk or risk-prone situation in transactions of.

31 bank or financial institution and to carry on banking and financial transactions carefully according to its policies and strategies, (c) To make necessary policy management for carrying out functions of bank or financial institution and to operate the bank or financial institution in well order and rational manner by carrying out regular monitoring of such functions, (d) To prepare clear organizational structure of the bank or financial institution and frame policies and implement it accordingly, (e) To submit audit report including annual progress report of the bank or financial institution before the General Meeting, (f) To carry out other functions as specified by the Rastra Bank from time to time. 23. Accountability and Responsibility of Director: (1) A Director shall not commit or cause to be committed any act for personal benefit through a bank or financial institution or in the course of business of bank or financial institution. (2) A Director shall be personally liable to any act carried out exceeding his/her authority as in the capacity of a Director of the bank or financial institution. (3) A Director of a bank or financial institution shall have to assume responsibility with regard to risks management and internal control by following sound business strategies of the institution. (4) A Director shall not have to intervene in the daily functions and activities of the management of the bank or financial institution. (5) A Director shall have to fully comply with the directives issued by the Rastra Bank from time to time. 24. Details of Directors to be collected: A bank or financial institution shall collect the following details of a Director:-.

32 (a) Name, surname, address, academic qualifications, profession and experience of the director, (b) Details as to designation and responsibility if he/she has worked earlier as Director, official or employee of any other agency, (c) Details as to name and address of family of the Director and relevant person's details and financial interests of himself/herself or his/her family in bank or financial institution or other agencies, share ownership in his/her name and names of the family of said institution, (d) Details of the shares and debentures subscribed by the Director or his/her family members in the bank or financial institution or its holding or subsidiary company, (e) Details of the family members is working as official or employee in the concerned bank or financial institution, if any, (f) Details as to whether the concerned bank or financial institution has, or is going to have, any type of agreement with himself/herself or his/her family member, (g) Details as to whether any type of interests or concerns with regard to appointment of Chief Executive, Company Secretary and Auditor, (h) Written authority given to the Rastra Bank to allow it to conduct an inquiry or to cause to be conducted the inquiry as to the financial and professional background of the Director, (i) Self-declaration that he/she is qualified to be the Director pursuant to this Act, (j) Any other details as specified by Rastra Bank from time to time to be furnished before the Rastra Bank and the Board of Directors. 25. Information of Director and Record: (1) A Director shall have to submit the details referred to in Sub-Section (1) of Section 24 to the bank or financial institution within seven days of his/her appointment. (2) The bank or financial institution shall have to separately maintain records of the details submitted pursuant to Sub-Section (1)..

33 (3) In case a Director or any member of his/her family acquires any substantial ownership or any type of interests in the bank or financial institution directly or indirectly, such Director shall have to present full details thereof at the first meeting of the Board of Directors. (4) The Director shall, while conducting discussions on any subject related to any interests in the Board of Directors or in any other sub-committee, have to inform about such interests at the beginning of the meeting and he/she shall not take part in the discussions or voting on such subjects. (5) In case there is change in the details as referred to in Sub-Section (2) or Director has been changed, information thereof has to be submitted to the Rastra Bank within 15 days. (6) The Rastra Bank, if it deems it appropriate to conduct an inquiry on the information forwarded pursuant to Sub-Section (5), shall have powers to conduct or cause to be conducted inquiry on it. 26. Sub-Committees may be formed: (1) Except otherwise expressly provided for in this Act that particular work shall be carried out by any particular agency or official, the Board of Directors may form one or more sub-committee/s for any specific purpose subject to the directives of the Rastra Bank. Provided that the Chairperson of the Board of Directors shall not be allowed to remain in the sub-committee. (2) The functions, duties, powers and rules of procedure of the sub- committee formed pursuant to Sub-Section (1) and the remuneration or allowances receivable by the member for attending its meetings shall be as prescribed by the Board of Directors and such functions carried out by such sub- committee and expenditures incurred thereof shall be clearly mentioned in the annual report..

34 27. Delegation of Power: The Board of Directors may, having stated the rational and reasons, delegate any of its powers to any Director, a sub-committee formed pursuant to Section 26, the Chief Executive or any person acting as the Chief Executive of the bank or financial institution on the condition that such powers shall be exercised under its supervision or direction. 28. Allowances and Facilities of the Director: Meeting allowances and other facilities to be entitled to a Director for being present in the meeting shall be as provided for in the Articles of Association. 29. Appointment of Chief Executive and Terms and Conditions of Service:(1) The Board of Directors shall, subject to this Act, Memorandum of Association and Articles of Association, appoint one Chief Executive for management of the bank or financial institution. (2) The tenure of office of the Chief Executive shall be of four years in maximum and he/she may be re-appointed again for next one term of office. (3) The provision referred to in Sub-Section (2) shall come into force after commencement of this Act. (4) Notwithstanding anything contained in Sub-Section (2), the Board of Directors may remove the Chief Executive from his/her office at any time; in case his/her work performance has not been satisfactory. Provided that before removing from the office, reasonable opportunity shall have to be provided to him/her to submit clarification. (5) While appointing an Chief Executive, the persons having possessed the following qualifications and experience shall be appointed and information thereof shall be furnished to the Rastra Bank within seven days from the date of appointment:-.

35 (a) Having attained Master’s degree in management, banking, finance, monetary, economics, commerce, bookkeeping, statistics, account, mathematics, business administration or law, (b) Having work experience of at least ten years as an officer level or above in banking or finance sector, government agency, corporate body, university or an international institution or organization to carry on similar works after having attained bachelor’s degree in chartered accountancy or management, banking, finance, monetary, economics, commerce, bookkeeping, statistics, account, mathematics, business administration or law, Provided that in case of the Chief Executive of a Class "D" financial institution, one shall have to possess the academic qualifications and work experience as specified by the Rastra Bank. (c) Having completed the criteria as prescribed by the Rastra Bank with regard to appointment of the Chief Executive, (d) Not been disqualified pursuant to Sub-Section (1) of Section 18. Provided that disqualifications as mentioned in Part (i) and (n) of Sub- Section (1) of the Section 18 shall not apply with regard to the Chief Executive. (6) In case the Chief Executive appointed pursuant to Sub-Section (1) has not been found qualified according to this Act, the Rastra Bank may issue order to the concerned bank or financial institution to remove such Chief Executive and to appoint another person being qualified to get appoint in the post of Chief Executive. (7) Remuneration and terms and conditions of service and other facilities of the Chief Executive shall be as specified by the Board of Directors and the terms and conditions of service and facilities shall have to be fixed at the time of his/her appointment..

36 (8) The Chief Executive of any bank or financial institution may not be appointed as the Chief Executive, official, employee or in other position in any other business organization. Provided that provision of this Sub-Section shall not be deemed to have made obstruction to be the Director of an Infrastructure Development Bank in which the bank or financial institution has made investment in such development bank. 30. Functions, Duties and Powers of the Chief Executive: (1) The functions, duties and powers of the Chief Executive shall be as follows:- (a) To exercise the powers delegated by the Board of Directors and to implement decisions of the Board of Directors subject to the Memorandum of Association and Articles of Association and oversee and control the activities and transactions of the bank or financial institution, (b) To prepare annual budget and action plan of the bank or financial institution and submit before the Board of Directors for approval, (c) To manage necessary human resources subject to the Personnel Byelaws of the bank or financial institution, (d) To implement or cause to be implemented the decisions of the General Meeting, (e) To operate the institution according to this Act and directives of the Rastra Bank and to have effective internal control system and risks management, (f) To submit statements, documents, decisions, etc. to be submitted by the bank or financial institution to the Rastra Bank or any other agency on time subject to this Act, directives of the Rastra Bank and Memorandum of Association and Articles of Association, (g) To operate the institution with optimum protection of interests of depositors, shareholders and the institution itself,.

37 (h) To apply appropriate norms for senior management subject to the policy as determined by the Board of Directors. (2) The Chief Executive shall be accountable to the Board of Directors for own work. Chapter-5 Provisions on License 31. Prohibition on carrying on Financial Transactions by anyone other than Bank or Financial Institution: (1) No one, except the bank or financial institution having obtained license pursuant to Section 34, shall carry on banking or financial transactions according to this Act. (2) The Rastra Bank shall formulate and execute licensing policy concerning bank or financial institution for the purpose of granting license to the bank or financial institution. 32. Use of Name of Bank or Financial Institution: (1) No one shall use the name of a bank or financial institution for the purpose of carrying on banking and financial transactions without obtaining approval from the Rastra Bank. (2) Any person, company, or institution shall not be entitled to use in its name the words such as “bank”, “banking”, “finance”, “financial” or other words or symbol or adjective indicating similar meaning without getting prior approval from the Rastra Bank, except the bank or financial institution having obtained license to carry on banking and financial transaction pursuant to Section 49 of this Act and a foreign bank or financial institution opening a branch office in Nepal. (3) Notwithstanding anything contained in Sub-Section (2), the provision as referred to in Sub-Section (2) shall not be applicable in case of following organization:- (a) Any organization established or recognized according to law, or international agreement or practice,.

38 (b) The company submitting application for carrying on banking and financial transactions within six months of incorporation. (4) Notwithstanding anything contained in Sub-Section (2), any bank or financial institution having obtained approval to carry on financial transactions according to the prevailing laws during the commencement of this Act may carry on financial transactions by using the name prevailing at the time of approval. (5) Financial institution of Class “B”, “C” and “D” shall use the name as “development bank”, “finance company” and “micro finance financial institution” respectively. (6) The bank or financial institution having used the name of micro-finance development bank before commencement of this Act shall use the name as referred to in Sub-section (5) after the commencement of this Act. 33. Application to be filed to obtain License for carrying on Banking and Financial Transactions: (1) A bank or financial institution desirous of carrying on banking or financial transactions pursuant to this Act shall make an application to the Rastra Bank for obtaining license with fee as prescribed by the Rastra Bank. (2) The bank or financial institution shall also enclose following details and documents with the application to be made pursuant to Sub-Section (1): - (a) A copy of the Memorandum of Association, Articles of Association of the bank or financial institution along with the certificate of incorporation according to the prevailing laws, (b) Particulars of an office building equipped with all infrastructures required by the bank or financial institution to carry on financial transactions, or, if such building is to rented, a copy of the lease agreement and the particulars of the building to be rented, including that there are enough bases for making available banking and financial services and facilities,.

39 (c) Document evidencing that the amount of the shares undertaken to be subscribed by promoters is paid and deposited to the Rastra Bank, (d) Byelaws Relating to Conditions of Service and Facilities of the Employees, Financial Administration Byelaws; and Bye-laws relating to Write-off of Loans of the bank or financial institution, (e) Principal place of business or if address of the branches have been ascertained, address thereof, (f) Consent that the terms and conditions set forth by the Rastra Bank for carrying out banking and financial transaction will be abided by, (g) Business plan prepared by incorporating business strategy of the bank or financial institution, organizational structure suitable to nature of the transaction to be operated, internal control and risk management process, (h) Name-list of the Directors and officials of the bank or financial institution and details stating that they are qualified to become the Director and officials according to this Act, (i) Commitment to meet the minimum capital adequacy ratio set by the Rastra Bank from time to time until the bank or financial institution carries on banking and financial transactions, (j) Commitment that the bank or financial institution will maintain an internal control system for proper management of all potential risks, (k) Other details and documents specified by the Rastra Bank from time to time. (3) In case of a bank or financial institution to be established in joint venture in Nepal by any foreign bank or financial institution, the following details and documents have also to be submitted to the Rastra Bank in addition to those matters as mentioned in Sub-Section (2):- (a) In case of bank or financial institutions of Class “A”, “B”, “C” and “D”, letter of consent or approval given by the government of the concerned country or central bank or regulating agency formed according to the laws of the concerned country of foreign bank or.

40 financial institution, for operating banking and financial transactions in Nepal by such foreign bank or financial institution, (b) Upon submitting application to the Rastra Bank to incorporate foreign bank or financial institution or upon obtaining permission from the Rastra Bank, if any matter to be fulfilled by such foreign bank or financial institution under this Act could not be fulfilled, details of that matter, (c) Other information and documents specified by the Rastra Bank. (4) The Rastra Bank may, if any documents or details are not adequate or sufficient while carrying out enquiry to the documents and details received pursuant to Sub-Section (2) or (3), ask for additional documents or details from concerned bank or financial institution. 34. License may be granted for carrying out Banking and Financial Transactions:(1) In case the Rastra Bank finds, while carrying out inquiry on the application submitted pursuant to Section 33 and documents and details enclosed therewith, that all requirements to carry on the banking and financial transaction under this Act are met, the Rastra Bank may issue license of any class based on the classification of bank or financial institution pursuant to Section 37 within one hundred twenty days to operate banking and financial transaction. (2) Before issuing license pursuant to Sub-Section (1), the Rastra Bank shall ascertain the following matters:- (a) Granting of license for operation of bank or financial institution will result in development of healthy competition and effective financial intermediary transaction and it will result in protection of interests of depositors, (b) It is capable to carry on banking and financial transactions subject to this Act, Rules, Byelaws framed thereunder, Orders or Directives as well as Memorandum of Association and Articles of Association,.

41 (c) The documents and details submitted along with application pursuant to Section 33 for license are sufficient and physical infrastructures are adequate, (d) Any official appointed or included or to be appointed or to be included in the bank or financial institution is capable of carrying out banking and financial transactions. (3) In case the Rastra Bank has specified the date of enforcement of license while issuing license to carry on banking and financial transactions, the license shall be deemed to have been activated from that specified date and if no such date has been specified, the license shall be deemed to have been activated from the date of issuance of the license. 35. Issuance of License may be denied: (3) Notwithstanding anything contained in Section 34, the Rastra Bank may deny to issue license to operate banking and financial transactions to a bank or financial institution in any of the following circumstances:- (a) If it causes adverse effects on the stability, fair competition and credibility of the financial system of Nepal, (b) If it is not reasonable and appropriate to issue license for operation of financial transaction for protection of interests of depositors, (c) If the infrastructure to operate banking and financial transactions are not completed, (d) If other particulars or conditions pursuant to this Act are not found to be completed. (2) The Rastra Bank shall, in case there is a situation that the license to operate banking and financial transactions could not be issued according to this Section, inform to the concerned bank or financial institution stating the reasons thereof within ninety days of the date of filing of the application..

42 36. Rastra Bank may Specify Conditions :(1) The Rastra Bank may, while granting license for carrying on banking and financial transactions pursuant to Section 34, specify necessary terms and conditions by giving consideration to existing position of the bank or financial institution, healthy operation of financial transaction and interests of depositors. It shall be the duty of the concerned bank or financial institution to abide by such terms and conditions. (2) The Rastra Bank may bring necessary alterations and changes from time to time as per the requirement in the terms and conditions as specified pursuant to Sub-Section (1). 37. Classification of Bank or Financial Institution: The Rastra Bank shall, based on minimum paid up capital of the bank or financial institution submitting application pursuant to Section 33 for carrying on banking and financial transactions and transaction to be operated on by such bank or financial institution and working areas, classify banks or financial institutions in classes “A”, “B”, “C” and “D” and issue license to concerned banks or financial institutions accordingly. Provided that an infrastructure development bank shall not be classified in any class. 38. May be Converted into Higher Class of Bank or Financial Institution: (1) If a bank or financial institution of lower class desires to be converted into a bank or financial institution of one level higher class, it has to submit an application to the Rastra Bank. Provided that the class "D" institutions may not be converted into the higher class. (2) If the Rastra Bank deems appropriate, upon carrying out inquiry into the application and details enclosed with the application according to Sub-Section (1),.